Prepare for worst, says BoE

BANKS should implement procedures to limit damage to the economy in the event that they collapse, the deputy governor of the Bank of England Paul Tucker told the BBA conference yesterday.

Tucker said that the social contract between banks and society needed to be redrawn and called on lenders to keep information on how they would fund themselves in a crisis, to be given to central banks in the event of an emergency.

He warned that collating such information was “not going to be cheap”, but said such measures would allow for an “orderly wind down” if a lender fails.

He also suggested that banks would need to undergo a “radical simplification” of how they are structured in order to temper the risk they could pose to the economy.

“Banks can’t live in a world where the upside goes to shareholders and boards, while the downside goes to the taxpayer,” he said.

Tucker added that deposit insurance schemes needed to be 100 per cent pre-funded, to ensure that depositors of struggling lenders did not launch a run on their bank in fear of losing their funds.